How to Lower Your Property Tax Liability

This commentary originally appeared in the Austin American-Statesman on April 25, 2016.

You’ve likely recently received this year’s property tax appraisal. If you own property in Travis County, after picking your chin up off the floor from the massive increase, there could have been a sense of delight or frustration.

​It’s nice that home values are reported to have increased, on average, 9 percent countywide for those looking to sell their home soon. But the vast majority of Austinites not looking to sell their home stress about paying more for inflated property taxes.

Fortunately, there are measures that state and local officials could take to put taxpayers back in the driver’s seat instead of local taxing jurisdictions and appraisal districts. The ultimate long-term solution must be to allow Texans the freedom to own their home by eliminating property taxes.

Last November, voters overwhelmingly approved a constitutional amendment passed by the Texas Legislature that increased the homestead exemption for property taxes supporting school districts by $10,000 to $25,000. This helps to provide welcome tax relief in a state that has the 14th most burdensome property tax system in the nation.

However, as values continue to rise this measure just lowers their property tax bill temporarily at best.

Consider an Austin home valued at $285,000. Given tax rates by each local jurisdiction and the appropriate exemptions, this home would need to increase by no more than 2 percent for no change in tax liability. However, the average 9 percent increase would force this homeowner to pay about $450 more.

Local property taxes levied statewide increased by 101 percent compared with only a 70 percent increase in compounded population growth plus inflation from 2000 to 2013. With soaring property taxes, homeowners deserve to have a greater voice in taming this burden.

A way to give them that voice is by reforming the rollback provision. This would require an automatic local election to approve tax rates that would increase property tax revenue by more than the lesser of either population growth plus inflation or 4 percent. This approach is gaining traction in the Legislature as it will provide greater budget transparency and help limit the rising tax burden.

Although raising the homestead exemption and reforming the rollback provision are good steps, this leaves the problem of paying rent to the government forever.

Republican primary voters noted their frustration with this burden by their response to a proposition last month that read: “Texas should replace the property tax system with an alternative other than an income tax and require voter approval to increase the overall tax burden.” It passed by a wide margin with 69.5 percent in favor.

Clearly, Texans want more control over their livelihood instead of giving it to local officials that may unnecessarily raise their taxes to pay for excessive spending. In addition, this would allow homeowners to be delighted when they receive notice that their home value increased because they get to reap the rewards instead of stressing about paying higher taxes.

To replace property tax revenues in the most efficient way, research shows that the most simple, transparent, and economic enhancing option would be to enact a reformed sales tax. If the sale of property and services taxed in at least one other state were added to the current sales tax base, then the rate would increase from 8.25 percent to 11 percent. Not much of a change when you consider that you get to keep substantially more money as a homeowner and renter without property taxes.

This swap would provide meaningful tax relief for property owners, and it would have the added benefit of strengthening the state’s economy by encouraging capital investment — the primary driver of economic growth and job creation. Estimates show that this could create as much as $63 billion more in personal income and 337,000 net new jobs over five years compared with the status quo.

A sales tax would also have the added benefit of resisting excessive growth in local governments while still paying for essential services that property taxes support today. For example, state sales tax collections increased by only 86 percent compared with the 101 percent increase in property taxes from 2000 to 2013.

Bottom line: There are solutions to reducing excessive property taxes. In the short run, voters should have more control by reforming the rollback provision. But let’s not take our eyes off the ultimate prize for Texans to have more opportunity to reach their full potential and finally own property by eliminating property taxes.

Heflin is director of the Center for Fiscal Policy at the Texas Public Policy Foundation. Quintero leads the Think Local Liberty Project at the Texas Public Policy Foundation.

http://www.texaspolicy.com/blog/detail/how-to-reduce-your-property-tax-liability​